Human Resource Management Systems
It is common to view organizations as systems with inputs, processes, and outputs. (Choo and Bontis, 2002) If one were to picture a firm’s human resources as a system, it would require certain human resource inputs such as knowledge, skills, and capabilities that enable a firm’s transformational processes to create and deliver products and services that are valued by customers. The system would then convert these inputs through a set of distinct yet interrelated activities, functions, and processes in order to achieve the output: an intangible source of competitive advantage.
This output of sustained competitive advantage could then be measured in a number of ways including reaching intended outcomes, return on assets (ROA), market-to-book ratios, percent growth, perceived organizational performance, perceived market value, and quality control measures (Karami, Anoloui, & Cusworth, 2004). Human Resource Inputs There are three major sources that when combined can produce organizations that are likely to be successful.
Each of these three major sources (human resources, organizational capabilities, and core competencies) are centered in the human side of business. Human resources inputs encompass the knowledge, skills, and motivation that enable a firm’s transformational processes to create and deliver products and services that are valued by customers (Huselid, 1995). When discussing our nation’s wealth, Hunt (1995) stated that all wealth from value-added operations depends on the knowledge and skills of the people adding the value.
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However, Maulden, Bentley, Dwyer, and Houston (2004) indicate that the current workforce does not posses the required knowledge and skills that will enable our organizations to compete in the global marketplace. In fact, at least 51 million people in the United States have not completed a high school diploma or GED. Only 24 percent of new jobs can be filled by people with a basic high school education, and high school dropouts are only eligible for 12 percents of new jobs (Maulden et al.
, 2004). The Office of Vocational and Adult Education reported in the 2002 census that nearly 58 percent of those not having a diploma or GED are not in the nation’s labor force. In a strict financial sense, studies have shown that low levels of literacy and a lack of basic skills cost business and taxpayers more than $20 billion in lost wages, profits, and productivity annually (Maulden et al. , 2004).
They noted that deficiencies in employees’ reading and writing skills cost businesses $25 to $30 billion each year in lost productivity, accidents, errors, scrap rates, and rework expenses. It is likely that the escalating numbers of adults that function at the lowest levels of literacy and the growing trend of high school dropouts will continue to add to the frustrating task of recruiting and retaining qualified workers.
Because there may be a basic skills deficit within our workforce and a general lack of agreement among researchers as to what skills are necessary for employees to add to the value of an organization, organizations may need to adopt various human resource management practices to enhance employee skills. Human resource management practices can influence employee skills through the acquisition and development of a firm’s human capital (Huselid, 1995).
These efforts may focus on improving the quality of the individuals hired through staffing selection practices, or by raising the skills and abilities of current employees through training and development, or both (Huselid, 1995). After all, if an organization is unable to recruit fully qualified employees, there must be processes in place to educate, train, or develop the employees to better meet organizational needs. A well-educated, well trained, inimitable organizational workforce is the goal of any organization wishing to achieve an advantage over its competitors.
However, as Huselid (1995) points out, the effectiveness of skilled employees may be limited if they are not motivated to perform their jobs. An organization’s structure and human resource management system may affect employee motivation levels in several ways. In a 2002 study of the financial industry, Kubo and Saka (2002) noted that monetary incentives, human resource development practices such as promotion and job rotation, and job autonomy were the three top reasons that employees choose to seek positions in other firms.
Each of these findings are consistent with Huselid’s (1995) research that indicates human resource management practices can affect employee motivation by encouraging employees to work harder and smarter. These practices may include merit pay, incentive compensation, formal grievance procedures, employee participation systems, internal labor markets, and job autonomy (Huselid, 1995).